Groceries Supply Code of Practice

Helen Morgan Excerpts

Monday 22nd January 2024 Westminster Hall

[Helen Morgan (North Shropshire) (LD)]

It is a pleasure to serve with you in the Chair, Mrs Murray. I thank the hon. Member for Neath (Christina Rees) for opening the debate and outlining the issues so eloquently.

I might have mentioned on one or two occasions that my constituency of North Shropshire is rural. The issues that face the farming industry are core to everything that happens in it; farming and food production are core to the economy and our landscape, and are very important in our communities, so the issue affects us all very strongly. It is important to recognise that the farming sector has found itself in the pincer between how the cost of living affects farmers’ business and how it affects consumers. As we know, despite the problems facing the farming industry, food inflation has been running very high, and there is huge pressure from the supermarkets to keep people’s food prices low. It is our food producers who are finding themselves caught in the grip of that pincer.

On Friday afternoon, I had the pleasure of visiting Lower Lee dairy farm in North Shropshire, which is a great place to visit. It has cutting-edge technology, with a robot-orientated milking and feeding programme, so it is at the top end of animal welfare. The cows do not have to interact with people too much—I did not hear a single moo while I was there. It is a really important business; though it may be rural and looks very pretty, the technology has required enormous investment. There are growing borrowing costs for farmers, on top of the supply chain issue. If we want these good, modern businesses to thrive, we really need to think about how we will support them.

Dairy farmers are feeling the squeeze and worrying about their future. A survey last summer by the National Farmers’ Union found that 23% of dairy farmers were unsure whether they would carry on producing into 2025. That is because the price that they receive for their milk often does not cover the cost of production. As the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) mentioned, soaring input costs such as energy, feed and borrowing costs are fed into farmers’ operating model and have made things increasingly difficult. As we know, the price of milk is affected by global markets, and it has come down from the post-covid highs to leave many dairy farmers in a very difficult position. They often contract directly with a big supermarket or a dairy, and some supermarkets have attempted to improve the model on which they pay farmers to a cost-plus model, which is to be welcomed, but even in those instances, they are strongly incentivised to keep their costs low, and even under-report them in some instances. In the past, the big supermarkets have abandoned the most expensive 10% of producers in the contract.

If those producers go out of business, there will not be enough milk for UK demand—it is finely balanced at the moment—and it will have to be imported. It is important to think about the environmental and animal welfare implications of importing milk, because our cattle are some of the most well looked after and environmentally friendly in the world. So this is not just about maintaining our landscape and our economy; it is the right answer for the environment and animal welfare. It is really important that we support dairy farmers to be paid a fair price for the milk they are producing.

We not only have cows in Shropshire, but grow fruits, vegetables and other crops as well. When I meet constituents, they raise the issue of intermediaries and people who process food. Just before Christmas, I went to see the director of Maincrop Potatoes Ltd, who trades potatoes throughout the UK. Potato farmers have had a particularly torrid time over the last winter with the rainfall we have seen and the difficulty in getting potatoes out of the ground. They are not well positioned to benefit from the sustainable farming incentive because of the things that have to be done to grow potatoes and the way crops need to be moved around from year to year. They are squeezed to a horrendous extent.

A major producer of chips and other similar types of potato goods increased payments to its contracted suppliers by 0.4% this year in the face of increased costs for fertiliser, fuel, machinery and doing business that are clearly way in excess of that. That has taken its toll: potato acreage is falling and we are starting to increase our imports of potatoes from countries such as Egypt. We face the same problem of damaging our food security and importing goods from countries where we do not have control over whether they take the environmental steps required to produce in the most sustainable way.

We need to recognise the importance of food security and affordability. I do not think anybody here would like to see food prices rocket for consumers. That is where the Groceries Code Adjudicator is so important: it is not just about the margin that the supermarket takes. Supermarkets have made absolutely astronomical profits during the cost of living crisis and have not been feeling the squeeze in the same way that farmers and consumers have. However, we also need to look at food producers that intervene in the supply chain before things reach the supermarket. There are people are like me who do not cook everything from scratch and do not always use a raw potato or a raw carrot—they buy some processed food as well. We need to make sure that those producers are not gouging prices from farmers. I would really like to see the code of practice extended to anybody who buys produce from farms so that the balance of power between the producer and the processor is appropriately managed.

In conclusion, I echo the calls of the petitioners to extend the code to intermediaries and producers, and to resource the adjudicator properly so it can make sure that those provisions are being enforced and that the farmer, who is often a small business, does not have the teeth to shout up and is in fear of losing their contract, is properly protected by the arrangements we have put in place. I support the petitioners, our farmers and our food producers, and I would like to see the amount of profitability through the supply chain looked at and managed so that we keep our farmers in business and do not have to import food from across the world.

--- Later in debate ---

[Mark Spencer]

That is slightly off topic, but I can assure the hon. Lady that we are doing quite a lot of work. Again, we are working with major retailers and producers across the food production sector to ensure, first, that we understand the impact of any changes that we might make. Secondly, I am personally concerned about the burden of those changes falling on primary producers, and about major retailers and processors taking any advantage, because the primary producers should benefit from the environmental improvements that they make within their own businesses. It is important that we get that right. I am also concerned about the offshoring of carbon. We must take into account the equation between what is produced here in the UK and what might be imported from abroad, and the carbon footprint that that might have. We are giving a lot of thought to that at the moment. I know that the hon. Lady is committed to these issues, and I am sure that she will have an opportunity to contribute to the debate as we move forward.

We have worked closely with the industry to ensure that the regulations are tailored and proportionate, and provide the flexibility required in a global commodity market. They will create a new enforcement regime, and we will appoint an adjudicator to oversee compliance for our sector-specific codes. The regulations are undergoing final checks before their planned introduction to Parliament, as I say, hopefully before the Easter recess.

In 2022, we followed our dairy review with a review of the pig supply chain, and we published a summary of responses in 2023. We have committed to developing similar regulations to those being introduced in the dairy sector to introduce new rules for supply contracts and to improve market transparency through better market reporting data. We have developed a proposal that sets out the main features of the new regulations. We have been discussing them with industry and we expect to introduce them in summer this year.

[Helen Morgan]

I am sure the Minister understands as well as everyone else does that it is very important that the regulations take effect before farming businesses go out of business. The barriers to entry are high, there is a high cost of investment and we need to keep people in business, because getting them to come back into the sector will be incredibly difficult. Does he acknowledge that problem?

[Mark Spencer]

I wholly recognise that challenge. I am an ex-dairy farmer, and we left the dairy sector as a farming family in 2001. We did that because it was economically challenging; we could not make it pay. I think the milk price at the time was around 28p a litre at the farm gate. I can say to her that if I were offered £5 a litre tomorrow, there is no way that I would go back into the dairy sector. Once someone has left the industries, getting back into them is very difficult, and that is recognised throughout the supply chain. Major retailers do recognise it, and it is particularly true for dairy and pigs. It is also true in the fresh produce sector, because the skillsets and machinery that are required take a lot to procure. Going back into those sectors is very difficult. We need to make sure we protect it, but processors and retailers recognise that they must not kill the golden goose that is the UK farming sector.

Last year, we launched two further reviews into egg and fresh produce supply chains. The public consultation on the egg sector supply chain closed on 22 December, and we are in the process of analysing the responses. As I said, the review into fresh produce was published on 14 December and closes on 22 February. Anything that hon. and right hon. Members can do to promote that to their constituents, so that they can feed into it, would be very welcome. We will publish the responses for each review within 12 weeks of the closing dates, and we will provide a summary of the findings and our next steps for each sector. We can only decide what action is needed once we have analysed the responses, but I can assure Members that we will use the powers in the Agriculture Act to introduce legislation wherever it is necessary. I hope this debate will encourage anyone with relevant views in the fresh produce sector to engage in the public consultation.